Sunday, February 08, 2009

Personal Notes on the Great Depression II

A number of months ago as our readers, hopefully, will remember, both Mr. and Mrs. Wonker were, as the Brits say, "made redundant" by our respective companies for various reasons. So we joined the ranks of the unemployed late last summer along with an increasing amount of our fellow citizens over the past several months.

Reporting from this front has been scarce, although I'd planned more. But I'd like to catch you up in a couple of posts here, as, having been among the early terminees, it's getting a little easier for us to see where this mess came from and where it's likely to end up.

In the first place, after assessing this economic mess over the last several months, I've come to some determinations, some neither surprising nor original, others, perhaps somewhat novel. Here we go:

This is not, and never has been a recession. It is a Depression, the second one we've had in the last 100 years or so. Or the third if you want to include the Panic of 1907. I'm not saying this because I've personally been whacked by it and simply "feel" that way. I'm saying it because it's essentially true, but neither the government nor the pundits dare say the word "Depression." They know that's what this is, but they also know that if they start using the word, it will in all probability make things worse in and of itself.

It's a Depression--the Depression of 2007--because a variety of calamitous events have either deflated commodities and real estate or have come damn well close to doing so. That's precisely what happened in 1929-1933. Work, product sales, etc. have, statistically, come to a halt. People are hoarding cash, food, and goods. Banks and insurance companies are now almost totally distrusted as depositories for money. And commodities are tanking because no one, effectively, is buying products that use these commodities. (Anyone buy a car lately? Even a Toyota?)

And Deflation is a far greater destroyer of value than inflation, or at least inflation of the garden variety. It destroys asset classes, and shuts down massive numbers of otherwise perfectly viable businesses which overnight become useless since absolutely no one will buy their products.

Our economy is now in a place where, at least to little people and small businesses, the megabanks will not lend; insurance companies are less likely to insure, at least at reasonable rates; and personal property--read real estate--is now often worth a LOT LESS than what you paid for it, destroying your equity (personal wealth) as well as the evaluation of that asset on your lending instution's books (or wherever it lives these days).

The good news, if there is any? The Federal Reserve, once it figured all this out (about 6 months late, unfortunately), has been doing what wasn't done in the Hoover administration: pumping vast amounts of speed-printed $$$ into the system. (Note: Hoover actually did do some of this stuff, contrary to popular, Democrat-fed legend, but it was way too little and way too late.)

Asset deflation has been so rapid and so all-encompassing that, for once, there's really no danger of inflation here at all. But, of course, there could be such a threat sometime in the future if the Fed is just as tardy in putting on the brakes as it was in goosing the system.

Now, of course, these macro-economic observations are all good and well for the big guys, the wealthy East Coast elites, the overpaid Feds, and the impervious policy makers. But what does it mean for you and me? Well, it'll take a couple more entries to deal with that.